VA Pharmaceutical Prime Vendor Contract Modification Update

1
VA Pharmaceutical Prime Vendor Contract
Modification Update

• January 27, 2003

2
VA Pharmaceutical Prime Vendor

• The VA Pharmaceutical Prime Vendor
• (VA PPV) is the wholesaler the VA has
  contracted with to provide medications to VA
  facilities. VA negotiates low distribution rates
  due to volume buying. VA allows Department of
  Defense, IHS, Bureau of Prisons and select other
  entities to order medications through the VA PPV.

3
VA PPV Contract Modification

• IHS and Tribes (through an IHS intermediary for
  services to those eligible under the ISDA
  contract or compact) have access to the VA PPV.
  Recent legislation proposed allowing Tribes
  direct access to the VA PPV without using an IHS
  intermediary. IHS has been working with the VA
  and the VA PPV to modify their current VA PPV
  contract to allow Tribes to order Federally
  discounted drugs directly from the VA PPV.

4
VA PPV Contract Modification

• The VA PPV contract modification is under
• development with many issues needing to
• be addressed before implementation.
• Contract Modification Steps
• Tribal Consultation
• Tribal Issues
• Additional Administrative Issues

5
Contract Modification Steps

• IHS requests Tribal Consultation
• IHS provides comments on draft to VA
• IHS meets with VA to discuss changes
• VA and PPV finalize contract modification
• IHS and VA modify interagency MOU
• Tribes wanting direct access sign contracts with
  VA PPV (AmerisourceBergen)

6
Tribal Consultation

• First Dear Tribal Leader Letter
• Sent to Tribes on Sept. 18, 2002.
• Responses requested by Oct. 15, 2002.
• 13 Tribes provided comments.
• IHS reviewed the responses.
• IHS comments sent to VA Jan. 13, 2003.

7
Tribal Issues

• Tribes wanted the ability to choose whether or
  not to order directly from the
• VA PPV or to use an IHS intermediary.
• Tribes wanted to be treated just like
• IHS related to pricing, distribution
• fees and delivery schedules.

8
Tribal Issues (Continued)

• Tribes felt that the minimum order quantity of
  5,000 per month should be reduced.
• Tribes were concerned about hardware and software
  repair or replacement after the warranty period.

9
Tribal Issues (Continued)

• Tribes wanted disputes settled in Tribal or
  Federal Court, not State Courts.
• Indemnification and Insurance issues need to be
  addressed as they relate to FTCA coverage.

10
Tribal Issues (Continued)

• Tribes felt the contract modification lacked
  detail in many areas.
• Tribes were concerned that the VA PPV contractor
  has the ability to terminate the contract or
  refuse to ship medications without a stated
  appeals process.

11
Tribal Consultation

• Second Dear Tribal Leader Letter
• To be sent out the week of Jan. 28, 2003
• Issues to be addressed
• Additional changes proposed by VA PPV
• IHS comments to VA
• IHS Access to Purchase Data
• IHS Contract Management Fee
• Response requested by end of Feb 2003.

12
Additional changes proposed byVA and
AmerisourceBergen

• Payments to be received through Electronic Funds
  Transfer.
• A section on receipt of goods and reporting of
  shorted or damaged goods.

13
Additional changes proposed byVA and
AmerisourceBergen

• Clarification on deliveries being Monday through
  Friday and how this affects the
• 24 and 48 hour delivery period.
• Handheld ordering devices will be available for a
  25/month rental fee.

14
Additional changes proposed byVA and
AmerisourceBergen

• Access to ordering mechanisms PPV will make a
  reasonable best effort to ensure an effective
  ordering method.
• Customer qualifications customers must meet
  commercially reasonable credit standards.

15
IHS Comments to the VA - General

• The contract modification should state that each
  Tribe choosing this option must sign a separate
  contract with VA PPV.
• The contract would reference the terms and
  conditions in the VA PPV contract modification as
  the basis for Tribal
• direct-access to the VA PPV services.

16
IHS Comments to the VA - General

• It should be clear that in carrying out an ISDA
  agreement a Tribe is deemed an Executive Agency
  and part of IHS for purposes of eligibility to
  the VA discount program and the VA PPV.
• However, the Tribe does not enter into the
  agreement as part of the IHS and IHS has no
  contractual or other liability.

17
IHS Comments to VA - Section 1

• To avoid confusion, the modification should
  specifically re-state current contract language
  that the Average Monthly Volume applies to each
  delivery location (rather than each entity). If
  a Tribe wants to reduce the distribution fee,
  they would need to pool their local orders and
  have them shipped to a single location.

18
IHS Comments to VA - Section 1

• The grandfather clause should explicitly state
  that Tribes that have been using an IHS
  intermediary will have the benefit of the IHS
  pricing and distribution fees.
• The modification should reference the contract
  sections that pertains to credit for shortages,
  damaged good and prepayment terms.

19
IHS Comments to VA - Section 2

• VA and VA PPV are asked to review the minimum
  monthly order dollar amount for ways to reduce
  this amount so additional Tribes may participate
  in the program.
• Tribes should be referred to an IHS intermediary
  as part of the 30-day written notice when the
  agreement is being terminated.

20
IHS Comments to VA - Section 3

• Clarify the delivery process for orders less than
  50,000 per month. What happens when there is
  only one delivery per week?
• The grandfather clause should explicitly state
  that Tribes that have been using an IHS
  intermediary will have the benefit of the IHS
  delivery schedule.

21
IHS Comments to VA - Section 6

• Reference the section of the VA PPV contract that
  states the conditions under which hardware is
  originally received.

22
IHS Comments to VA - Section 7

• Reference the VA PPV contract sections that
  provide for fixing or replacing defective
  software or hardware beyond the warranty period.

23
IHS Comments to VA - Section 9

• Add a reference to Section 105(k) of the Indian
  Self-Determination and Education Assistance Act
  in the first sentence.
• Identify any additional reasons for contract
  termination or refusal to ship medication orders.

24
IHS Comments to VA-Section 10

• Additional discussion is needed on the
  indemnification section. IHS does not believe
  FTCA is applicable for the intent of this
  section.

25
IHS Comments to VA-Section 12

• Tribes need to be notified when the
• VA PPV plans to terminate the contract and
  withhold shipment of medications due to
  insolvency. Tribes should be referred to an IHS
  intermediary to ensure there is a means of
  acquiring needed medications.

26
IHS Comments to VA-Section 13

• This section requires Tribes to carry
  professional liability insurance to protect the
  VA PPV. While many Tribes carry wraparound
  liability insurance that supplements their FTCA
  coverage, the exact intent of this section is
  unclear. Further discussion is needed.

27
IHS Comments to VA-Section 15

• The modification needs to state that all
  explanations (e.g., definitions, etc.)
  referenced in the original contract also apply to
  the modification.

28
IHS Comments to VA-Section 19

• The VA PPV would prefer disputes be resolved in
  State court. Tribes want disputes heard in
  Tribal or Federal courts. Application of Federal
  law under this type of contract is questionable.
  IHS suggests further discussion with binding
  arbitration being explored as a possible option.

29
Additional Items Proposed by IHS

• IHS would like to propose two additional
• items as part of the contract modification.
• Tribes will be informed for these issues in
• the second Dear Tribal Leader Letter.
• These items are
• IHS Access to Purchase Data
• IHS Contract Management Fee

30
IHS Access to Purchase Data

• IHS is proposing adding a section stating that
  Tribes or their intermediaries agree to allow the
  VA PPV to release pharmaceutical purchase data to
  the IHS.
• Data uses
• Annual budget formulation
• National Drug Contract usage monitoring
• Cost savings/avoidance reviews

31
Annual Budget Formulation

• IHS uses data from the VA PPV and other sources
  to determine actual drug purchases by IHS and the
  Tribes. These data help determine growth in IHS
  and Tribal pharmaceutical costs. This
  information is used in annual budget formulation
  to show Congress the need for additional funds
  for pharmaceuticals.

32
National Drug Contract Usage Monitoring

• When VA negotiates a National Drug Contract, in
  most cases VA agrees to purchase a certain amount
  of the drug to get a reduced price.
  Additionally, for closed class medications the VA
  agrees to use one drug in preference to all
  others in the class. IHS and Tribes agree to
  these conditions when participating in these
  contracts. When new contracts are being
  considered, IHS must provide VA drug usage data.
  These data come from VA PPV reports.

33
Cost Savings/Avoidance Reviews

• The VA PPV provides IHS with purchase data to
  allow examination of usage practices. One of the
  roles of the National PT Committee will be to
  review data to see where pharmaceutical costs can
  be reduced. An example is using simvastatin
  instead of atorvastatin in the treatment of
  hyperlipidemia. This has the potential to save
  1.6 million in one year, nationwide.

34
IHS Contract Management Fee

• IHS is proposing IHS and Tribal sites who use the
  VA PPV be assessed a 0.3 percent contract
  management fee (3,000 for every 1 million spent
  on drugs) to fund IHS contract management
  activities related to the VA PPV.
• Need for the Contract Management Fee
• VA Uses a Contract Management Fee
• IHS Contract Management
• National Core Formulary National PT Committee
• Cost Breakdown

35
VA Uses a Contract Management Fee

• VA uses a contract management fee charged to
  all non-VA users to conduct contract management
  activities ranging from contract development and
  negotiations to formulary management to research
  and development of National Drug Contracts.

36
IHS Contract Management

• There are a number of reasons for an IHS
• contract management fee. These include
• Managing the VA PPV contract is not a residual
  Federal function.
• Current funds are no longer available when Tribes
  order directly from PPV.
• Contract Management Activities.

37
Not a Residual Federal Function

• The management of the VA PPV contract and
  National Drug Contracts (NDCs) is a vital
  function for the IHS and Tribes to assure that
  medication can be purchased at greatly reduced
  cost. While using VA PPV and NDCs save IHS and
  Tribes over 50 in drug costs annually, this is
  not a residual function and therefore must be
  funded from other sources.

38
Current Funds are No Longer Available When Tribes
Order Directly From PPV

• Currently, contract management activities are
  being funded by fees charged to facilities that
  use IHS intermediaries to process medication
  orders. As Tribes begin to order directly from
  the PPV, they will no longer use IHS
  intermediaries and funds will not be collected
  that are currently being used for contract
  management.

39
Contract Management Activities

• Contract management activities benefiting
• both IHS and the Tribes include
• Working with the VA to ensure IHS and Tribes are
  included in the PPV contract solicitation. The
  VA PPV contract is solicited every 5 years and
  approximately 12 to 18 months before each
  solicitation IHS staff begin meeting with VA to
  make sure that IHS and Tribes are included and
  that our issues are addressed.

40
Contract Management Activities (Continued)

• Provided professional advice and assistance to
  the VA on questions and matters related to IHS
  and Tribal pharmaceutical usage and requirements
  during contract solicitation, selection, award,
  and administration periods.

41
Contract Management Activities (Continued)

• Working with the VA National Acquisition Center
  to ensure that IHS and Tribes are included on all
  National Drug Contracts. This requires providing
  to the VA purchase history information and
  commitment documents, for each ordering facility.

42
Contract Management Activities (Continued)

• Identifying and reporting overcharges on drug
  prices and ensuring that if IHS and Tribal
  customers have been overcharged, that they
  receive rebates or credits from manufacturers or
  the VA PPV. For example, when McKesson was the
  PPV, they had computer problems and IHS
  identified millions of dollars in overcharges and
  recovered those overcharges through intensive
  interactions with the VA.

43
Contract Management Activities (Continued)

• IHS has a single point of contact for VA and the
  VA PPV, per their request, to relay contract
  information or concerns to IHS and Tribal sites.
  Additionally, this point of contact serves as the
  IHS and Tribal contact with VA and the VA PPV to
  work on IHS and Tribal problems related to
  errors, billing, medication availability,
  delivery and other issues. IHS conducts
  conference calls with IHS and VA representatives
  to discuss PPV issues, concerns, and problems.

44
Contract Management Activities (Continued)

• Facilitates pooling of accounts for Tribal
  facilities that do not meet the 60,000 annual
  minimum for VA PPV purchases so that they have
  access to the VA PPV.
• Assure that up to date IHS and Tribal DEA
  certificates are kept on file with the VA and the
  VA PPV.

45
Contract Management Activities (Continued)

• Assure that medication ordering programs (e.g.,
  Echo and iEcho) are operating correctly and that
  facilities are satisfied with VA PPV customer
  service.
• Respond to questions from IHS and Tribes related
  to National Drug Contracts, prices, terms,
  substitution, pricing discrepancies, lock-out
  over-ride procedures, etc.

46
Contract Management Activities (Continued)

• Work with the IHS National Pharmacy and
  Therapeutics Committee to relay to VA which
  pharmaceuticals IHS and the Tribes would like
  considered for National Drug Contracts.
• Review drug contract solicitations to assure that
  bioequivalence and therapeutic classifications
  meet IHS and Tribal needs.

47
Contract Management Activities (Continued)

• Research, gather, consolidate, and provide
  pharmaceutical purchase history information
  (including information for Tribal facilities) to
  IHS Headquarters, National Core Formulary
  Committee, and other groups as appropriate.

48
National Core Formulary National PT Committee

• One of the new IHS functions related to managing
  the VA PPV contract is the implementation of a
  National Core Formulary and a National Pharmacy
  and Therapeutics Committee.
• Need for the
• National Core Formulary
• National PT Committee

49
National Core Formulary (NCF)

• The NCF was developed to address several
• needs including
• Standards of Practice
• Patient Access
• Safety
• Cost Shifting
• Cost Savings

50
Standards of Practice

• The IHS NCF is not a comprehensive drug
  formulary. Its purpose is to specify a core set
  of drugs that must be made available to IHS
  beneficiaries in order to maintain appropriate
  standards of care for common medical conditions.
  This first edition of the NCF includes about 50
  drug entities used to treat six high prevalence,
  high risk and high cost disease categories.

51
Standards of Practice (Continued)

• Sites may keep additional drugs on their local
  formulary.
• While almost all sites currently have all the NCF
  drugs on their local formularies, some sites have
  eliminated these standard of care drugs from
  their local formularies. This was done solely as
  a strategy for managing costs.

52
Patient Access

• A second benefit to the NCF is to make the drug
  benefit portable for patients. Whether a
  person travels or simply cannot get to the same
  facility all the time due to transportation
  issues, a NCF will increase the likelihood that
  patients on typical medical regimens will be able
  to get their medications without switching drugs.

53
Patient Access (Continued)

• The NCF also assists health care providers
  whether they are local providers, consultants or
  CHS providers. Since these NCF medications will
  be available at all sites, providers will know
  that a patient who is treated at one facility and
  transferred to another will be able to get the
  prescribed medication.

54
Safety

• A NCF can play an important role in improving
  patient safety. If all facilities have the same
  core medications, a patient transferring care
  from another location will not have to switch
  medications. This will obviate the need for
  additional monitoring and follow-up often
  necessitated by such changes.

55
Safety (Continued)

• Additionally, a NCF encourages providers to use a
  relatively small set of drugs for most
  prescriptions, leading to increase familiarity
  with these medications on the part of the
  provider and pharmacist. Additionally, the
  consistent utilization of disease state
  management guidelines will promote appropriate
  drugs use and reduce the likelihood of errors.

56
Cost Shifting

• Drug costs are increasing at a rate several
  times that of the core rate of inflation. As some
  sites eliminate needed drugs from their
  formulary, patients move to other facilities to
  continue to receive their medications. With a
  NCF, everyone should have the essential
  medications and patients will be less likely to
  move from site to site solely for medication
  reasons.

57
Cost Savings

• While the NCFs main purpose is improving patient
  outcomes, cost savings are also possible. As
  sites implement the NCF and use these medications
  preferentially to non-NCF drugs, sites should see
  reductions in overall cost. This is because NCF
  medications tend to be on NDCs and while being
  just as effective as other drugs, they are much
  less expensive.

58
Cost Savings (Continued)

• Not all sites will see a cost savings. Those few
  sites that have eliminated some NCF medications
  from their local formulary due to cost reasons
  will need to make these medications available to
  their patients. While this may pose a financial
  hardship at first, it is hoped that overall costs
  can be reduced at these sites by medication usage
  reviews done by the NPTC.

59
National Pharmacy Therapeutics Committee (NPTC)

• The NPTC is essential to the contract
• management process and the NCF.
• The NPTC will be responsible for
• Updating the NCF
• Serving as a resource to local PT committees
• Recommending Clinical Care Protocols
• Reviewing data for potential Cost Savings

60
Updating the NCF

• Clinical practice standards are constantly
  changing as new information on disease states and
  medications becomes available. For the NCF to be
  a useful tool for IHS and Tribal providers, it
  must be regularly reviewed and updated by the
  NPTC to include the latest information and
  clinical protocols.

61
Serving as a Resource toLocal PT Committees

• NPTC members, in addition to working on the NCF,
  will serve as expert resources to clinical staff
  working on local formularies or who want to do
  drug utilization reviews or other types of
  pharmaceutical-related evaluations.

62
Clinical Care Protocols

• The NPTC will develop clinical care protocols or
  refer providers to nationally recognized
  protocols for various disease states. While use
  of these clinical care protocols will be
  voluntary, it is well recognized that use of good
  clinical protocols can improve patient outcomes
  and may reduce overall costs.

63
Reviewing Data for Potential Cost Savings

• As mentioned previously, one of the major
  functions of the NPTC will be to examine the
  usage of medications by IHS and Tribes. The NPTC
  will look for ways to improve clinical outcomes
  and reduce or avoid costs. Facilities will be
  informed of actions they can take, such as
  changing from one drug to another, that may
  substantially reduce their overall drug costs.

64
Cost Breakdown

• Because the management percentage is tied to the
  amount of drugs purchased through the PPV, costs
  are roughly proportional to the size of the
  facility and the population served, and directly
  proportional to the facilitys drug expenditures.
  Facilities that are successful in managing the
  rate of increase of their drug costs, through
  observance of NCF recommendations or other means,
  will reduce their contribution to the surcharge.
  This provides a small but real incentive to
  manage drug costs.

65
Contract Management Cost (Including the NCF and
NPTC)

• The overall budget for contract management is
  approximately 480,000 per year. This is 0.3
  percent of the approximately 160 million/year
  that IHS and Tribes spend on pharmaceuticals.
  Funding pays for staff costs, travel expenses,
  website development and maintenance and printing
  costs.

66
Contract Management Cost (Continued)

• Staffing
• 1 full-time Pharmacist for contract mgmt
• 1 full-time Support Staff for contract mgmt
• 1 half-time Physician Chairperson for NPTC
• 1 full-time Pharmacist Vice-Chair for NPTC
• 12 field IHS and Tribal Physician and Pharmacists
  NPTC members (only travel costs are paid for
  these positions).

67
Contract Management Cost (Continued)

• Travel
• The NPTC will hold at least two face-to-face
  meetings annually with conference calls at least
  quarterly.
• Members will attend national and regional
  meetings
• to discuss issues and promote use of the NCF
• Travel to IHS and Tribal sites to work with local
  PTs
• Travel to VA and DoD formulary committee meetings
• Website
• A NCF and NPTC website will be developed and
  maintained.

68
Summary

• While the contract management fee is necessary to
  maintain the VA PPV contract, its cost is minimal
  compared to the potential cost savings. As
  mentioned previously, aggressive efforts in
  managing the treatment hyperlipidemia has the
  potential to save 1.6 million in one year,
  nationwide. This alone is more than three times
  the cost of the 0.3 surcharge, recovered by
  observing the NCF for just one drug class. Even
  modest improvements in this prescribing practice
  will more than pay for the surcharge.

69
Summary (Continued)

• Similar, though less dramatic, cost reduction
  will be seen through comparable efforts to change
  prescribing practices for other drug classes,
  such as calcium channel blockers and SSRI
  antidepressants. Overall, on a national scale,
  observance of National Core Formulary
  recommendations and requirements will produce
  savings far exceeding the cost of the surcharge.
  This should be true for every facility that
  implements and observes the NCF.